The FIFA World Cup final between Germany and Argentina was an all-Adidas affair and a huge marketing coup for the brand. (Photo: FIFA)

Monday, November 24, 2014

Special Reports

Latin America: Sportswear Sales Jump

Latin
America sprints ahead in sportswear growth.

BY MAGDALENA
KONDEJ

Latin America has emerged as the world’s star performer
in sportswear. At US$24 billion it remains one of the smaller regions in terms
of value sales, accounting for just 10 percent of the global market but it is
blazing a trail in terms of growth.

According to market research provider, Euromonitor
International, since 2008 the category has grown by 77 percent – the fastest value growth globally over the
review period. In absolute terms $11 billion has been added to the category –
almost twice the absolute growth seen in Western Europe, a market more than
twice the size of its Latin American counterpart.

With multinational sportswear brands seeking out new
markets to compensate for the sluggish recovery in Western Europe and North
America, Latin America is the place to look to. Fortuitously enough for
sportswear manufacturers, this regional goldmine of opportunity is also playing
host to two of the world’s most high-profile sporting events within a two-year
period. The 2014 FIFA World Cup, followed by the 2016 Olympic Games, both in
Brazil, will certainly play a defining role in driving the performance of
sportswear in the region, attracting major investment from the leading global
sportswear brands.

EVENTS BOOST
SPORTSWEAR

The importance of football in Latin America as a
sportswear sales driver can’t be understated: it is the sport of choice across
Latin America, Brazil and Mexico in particular. As well as 64 games and 171
goals, the 2014 World Cup saw an epic battle between Adidas, official World Cup
sponsor, and long-term global rival Nike. Both brands committed huge sums of
money to be associated with football’s crowning glory in a bid to stimulate
lucrative sales of replica jerseys and football boots.

Nike – the pretender to the football throne – got off to
a flying start, sponsoring more teams than Adidas for the first time ever at a
Football World Cup, including the home nation. There was also sponsorship of
Brazilian poster boy Neymar. Despite Adidas being the official sponsor, Nike
was the brand most Brazilians identified with the World Cup. In the end,
however, the Germany vs Argentina final, watched by millions around the globe,
was an all-Adidas affair, a huge marketing coup for the brand, which also
sponsored the Mexican team.

Despite football’s dominance, independent activities such
as running and cycling are gaining popularity with Latin American consumers and
exerting a growing influence on sportswear sales. The arrival of the Rio de
Janeiro Olympics will bring world-class runners and cyclists to the region and,
in all likelihood, further boost the popularity of the two sports, stimulating
growth as a result.

BRAZIL
LEADS, CHILE LAGS

Latin America was home to the world’s two fastest-growing
sportswear markets in 2013 – Venezuela and Argentina – although, in Venezuela
in particular, soaring inflation has had a distorting effect on sales and has
been eroding consumers’ purchasing power. At the other end of the spectrum,
Chile, one of the region’s smaller and less dynamic sportswear markets, is
suffering from deflation. Prices have witnessed a decline due to substantial
price competition, discounting and a flood of cheap Chinese imports.

At a country level, Brazil accounts for almost half of
the total Latin American sportswear market and inflation here is moderate
compared to that in Argentina and Venezuela. Worth $11 billion in 2013,
according Euromonitor, the country saw sportswear grow by 83 percent over the
review period, to overtake the UK, France, Italy and Germany and become the
fourth largest global sportswear market. Mexico, Latin America’s second largest
market at $4 billion, also turned in a strong performance, registering a total
of 57 percent value growth since 2008.

With 80 million people claiming to be actively engaged in
one or more sports, and approximately 60 percent of the population being under
30 years old, sportswear in Brazil is a lucrative market even without global
sporting events to drive sales. Rising disposable income is also contributing
to the strong performance of the sportswear category, as is a wider health and
wellness trend. Sporting venues are opening across the country and consumers
are increasingly aware of and willing to exercise – something that can only
gather momentum in the build up to the Olympics.

Despite this active population and rising disposable
incomes, annual per capita spend on sportswear remains relatively low ($55,
compared to $114 in Germany, the next largest market) when assessed at a global
level, indicating plenty more room for growth in the years to come. In fact, $3
billion is expected to be added to the Brazilian sportswear market by 2018,
with only the US and China predicted to see higher absolute value growth.

Brazil is unique in the region, in that performance
apparel and footwear rather than sports-inspired clothing is the largest
category within sportswear, accounting for 45% of sports apparel value sales in
2013. Whatever their sport of choice, Brazilians tend to purchase performance
brands to aid them in it. This is largely a reflection of the level of
seriousness with which they take their sport and so are prepared to pay more
for high-spec sportswear. It must also be noted, however, that Brazilian
consumers, as a whole, are extremely brand conscious, and the kudos behind a
big international brand name certainly influences purchase decisions.

NIKE LEADS,
LOCALS STRONG

Nike leads the way in the country, accounting for 11
percent of the market and benefitting greatly from rising disposable incomes –
in particular in sports footwear. Sports shoes that once were objects of desire
are now, thanks to an increase in purchasing power, part of many middle-class
Brazilians’ wardrobes. Nike’s momentum is likely to continue backed by its
aggressive “Twenty Twenty” marketing plan announced in 2012. The plan aims to
see Nike doubling its Brazilian sales by 2020. In October 2013, Nike opened its
online store with the announcement that customization of team shirts and
football shoes would soon be available on the website – a savvy move in football-obsessed
Brazil. In second and third place are local brands Mizuno and
Olympikus with 7 percent and 4 percent shares, respectively. Both have
benefitted from mid-price positioning, strong distribution and – more recently
– products that cater for runners.

Running has become the country’s second most popular
sport, with 4.5 million runners training regularly either outdoors or in gyms.
On the whole, dedicated runners are happy to invest in performance sportswear,
including special footwear, fast-dry T-shirts, compression shorts and anti-UV
caps, and there remains plenty of opportunity for development. Cycling is also
growing quickly in popularity – in Sao Paulo a section of the streets are
closed every Sunday specifically to play host to cycling competitions – and,
again, there is much room for further growth.

Of course, every country has its risks and Brazil’s
difficulties are something that must be taken into account. By far the main
concern is its consumer credit bubble. Brazil’s economic growth has been
propelled forward by consumption as opposed to investment. Accessibility to
credit has been a major driver of expenditure growth, with many Brazilians
paying in monthly instalments for their sportswear. Any reining-in of expenditure
by debt-laden consumers is likely to have a major impact on growth.
Furthermore, many higher-income Brazilians opt to buy their sportswear – and
apparel in general – overseas to avoid the country’s high import taxes.
Finally, counterfeiting remains a problem, although the impact of sales is
difficult to measure. That being said, while lower-income consumers have no
option but to opt for the counterfeit, as a whole, Brazilians much prefer to
buy the real thing.

MEXICO: GOVT
ENCOURAGES EXERCISE

Like Brazil, Mexico is seeing sportswear sales benefit
from rising disposable incomes and a growing health and wellbeing trend. The
Mexican government has launched several initiatives to improve the health of
its citizens, such as taxes on soft drinks and campaigns encouraging people to
exercise more. These government initiatives have boosted interest in
sports and exercise and their positive impact on sales of sportswear will
continue in the years ahead.

As is the case in Brazil, football dominates the sporting
landscape and competition for sponsorship deals with sports teams is strong,
but running is also gaining in popularity and races sponsored by sportswear
brands are cropping up with increasing frequency. The Mexico City Marathon had
around 10,000 participants in 2013 and 20,000 in 2014. While Mexicans as a
whole are less brand conscious than their Brazilian counterparts, the
popularity of running, in particular, has driven sales of performance footwear,
which recorded the highest value growth of all sportswear categories in 2013.
While Mexican runners are still happy to forgo performance apparel, instead
opting for cheaper, more basic t-shirts and shorts, the right footwear is a
necessity to cover the miles. As is usually the case, sports-inspired apparel
accounts for the majority of apparel sales, drawing from a wider consumer base
that wears the clothing for day-to-day activities.

Nike and Adidas are the leading sportswear brands and
both have a long-standing presence in the country and high brand awareness,
again particularly because of their association with football. Local
players have a much lower presence in Mexico than in Brazil, but that is not to
say that the likes of Nike and Adidas are free to proceed without challenge. Of
late, Mexico has seen a boom in arrivals of international apparel brands, first
in a wave of high-end, luxury brands and then, more recently, fast fashion
brands that also have an eye on the sports-inspired market. H&M, for example,
has recently launched its sportswear line in the country.

Nike and Adidas represent the more premium end of the
market from a price perspective; however, with these brands priced too high for
Mexican consumers, space remains in the economy and standard segments of the
market where fast fashion brands can potentially capitalize. With price still
remaining a barrier to branded sportswear for many, the arrival of lower-cost
sportswear from fast fashion brands may receive a favorable reception from consumers. As
it stands, sportswear in Mexico is growing quickly enough that there is room
for both bona fide sportswear brands and fast-fashion sportswear offerings to
grow side by side. That being said, the impact of this fresh competition on the
market is certainly one to watch, as the danger that specialized brands might
see their consumer base shrink can’t be ignored.

GOLDEN GROWTH
WILL CONTINUE

Looking ahead, Euromonitor International predicts that
the Latin American sportswear market will expand by a further 28 percent to 2018 – the fastest value growth of all the
global regions – adding $6.8 billion to the category.

While not without country-specific risks, the region’s booming middle-class,
young population, interest in sport, health and wellbeing, make any challenges
worth confronting for any sportswear manufacturers gunning for a place on the
winner’s podium.

Magdalena
Kondej is Head of Apparel and Footwear Research at Euromonitor International. This
article was written for Latinvex.